What's a Splunk? Part of the Next Wave of Start-Ups Going Public

By

Pui-Wing Tam and

Ben Worthen

Updated March 1, 2012 8:10 p.m. ET

SAN FRANCISCO—Silicon Valley's initial public offering machine is shifting to a new sweet spot: enterprise technology companies.

After a year of high-profile consumer Internet IPOs—from
Groupon
Inc.,
LinkedIn
Corp.
and
Zynga
Inc.
last year to Yelp Inc. and Facebook Inc. now—a slew of Silicon Valley companies that sell technology mainly to businesses are also getting ready to hit the stock market.

This new crop of IPO-ready companies are solving problems that businesses are willing to spend money on, such as improved security or better insight into customer behavior.

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Splunk Inc., a San Francisco company that helps businesses capture and analyze the data they generate, and Infoblox Inc., a Santa Clara, Calif., maker of network-automation technology, in January both filed to go public in IPOs aiming to raise around $125 million each.

Now other enterprise-tech makers are lining up to get out of the gate. According to people familiar with the matter, security-technology maker Palo Alto Networks Inc., online human resources software company Workday Inc. and tech-management software maker ServiceNow Inc. have picked bankers or are in the final stages of choosing and informing bankers for their IPO process. Atlassian Inc., which provides software building blocks to developers, is also aiming to file for an IPO this year, said another person familiar with the matter.

Spokespeople for Atlassian, Splunk, Palo Alto Networks and Workday declined to comment, while ServiceNow didn't immediately respond to a request for comment.

ENLARGE

Dave Duffield, co-CEO of Workday, which picked bankers for an IPO.

While well-known Silicon Valley consumer Web companies could still go public—such as Twitter Inc.—2012 marks "the revenge of the enterprise tech sector," said
Jim Goetz,
a board member of Palo Alto Networks and a venture capitalist at Sequoia Capital, which also backed ServiceNow.

Start-ups that target businesses traditionally take longer to turn a profit than consumer Web companies. But working in these companies' favor, bankers say, are predictable revenue streams based on recurring monthly subscription fees for their products.

Yelp is still expected to price its initial public offering Thursday evening - despite some signs of weakness that have crept into the IPO market, Dan Gallagher reports on digits. Photo: AP.

Splunk is still unprofitable but its revenue rose 79% to $77.8 million for the nine months ended Oct. 31 on the backs of big customers such as
Bank of America
Corp.
,
Comcast
Corp.
and Harvard University. Palo Alto Networks, meanwhile, said in August that its run rate exceeded $200 million in bookings and that it had been cash flow positive for five consecutive quarters.

The latest group of enterprise-tech start-ups have "compelling and repeatable" business models, said
Matt McIlwain,
a venture capitalist at Madrona Venture Group.

In many cases, the companies have also brought in executives with experience running public companies. Palo Alto Networks lured Chief Executive
Mark McLaughlin
away from publicly-traded
VeriSign
Inc.
in August. ServiceNow last year hired former DataDomain Inc. chief executive
Frank Slootman
to be its CEO. Splunk is run by
Godfrey Sullivan,
who was the top man at Hyperion Solutions Corp. until that company was acquired by
Oracle
Corp.
in 2007. And Workday's co-CEOs are
Aneel Bhusri
and
Dave Duffield,
who used to run software maker PeopleSoft, also bought by Oracle.

Even though the IPOs may not happen until the summer, the companies are moving quickly towards a public offering to take advantage of the current IPO window that has been kicked wide open by the excitement over Facebook's filing and a rising stock market. "It's better to be ready to go when you're able to go," said one investment banker.

Still, not all fast-growing enterprise tech start-ups are rushing to go public. On Wednesday, enterprise social network provider Yammer Inc. said it raised $85 million in a new round of funding, which CEO
David Sacks
is equivalent to "an IPO without the headaches." While a public offering is a next step for the San Francisco company—its rival,
Jive Software
Inc.,
held an IPO in December—Mr. Sacks said he is taking a leaf from Facebook's model of staying private for longer, so going public is "not something we spend time worrying about."

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